Townsend and Others v. Goewey — 19 Wend. 424

Majority

p. 424

Townsend and others vs. Goewey.

NEW-YORK,

May, 1838.

Headnote

Where an incorporated joint stock association is formed, and the members of it by the articles of association, promise to pay the amount of stock by them severally subscribed, in calls to be made by trustees named in the articles, an action at law lies to enforce such promise, notwithstanding that both the plaintiffs and the defendants are members of the association and consequently co-partners.

An action at law cannot be maintained upon an implied promise from one partner to another in the same association; but it lies upon an express promise in respect to advances to be made, or a common stock to be created, for carrying on the business of the association.

If the promise be to trustees named in the articles of association, the action must be brought in the names of such trustees, although the term of their office has expired, or the trust has passed into the hands of other persons

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either as successor, or as substituted by act of the legislature and the as. sent of the stockholders.

So the action must be brought in the names of the first trustees, although for calls made after their offices have expired.

This was an action of assumpsit, tried at the Albany circuit in October, 1837, before the Hon. John Willard, one of the circuit judges.

On the 24th May, 1836, an association was formed in the city of Albany, for the purpose of building an Exchange, and articles of association were entered into, whereby the subscribers agreed to form themselves into a joint stock company, to be known as “ The Albany Exchange Com pany," for the purpose of purchasing a block in the city, and erecting thereon a building for the use of banking and insurance companies, &c. which should not only be ornamental, but yield a fair return to the stockholders on their investment. The capital stock it was agreed should consist of 3000 shares of $100 each, and that the subscribers should take the number of shares set opposite their respective names, and pay the amount required to be paid thereon to the trustees in the articles named, or to their successors. The trustees named were I. Townsend, E. Corning, J. L. Rathbone, S. Stevens, J. Stevenson, G. W. Stanton and S. M. Woodruff, who were declared to be the first trustees and to hold their offices until the second Monday of January, 1837. The trustees were empowered to make calls from time to time' on the capital stock. The stock to be deemed personal property, to be transferrable as such, scrip to be issued, and assignees to be subject to the regulations of the association the same as the original subscribers. The articles not to be binding unless 2500 shares of the stock were subscribed for within ten days from the date of the articles. If a charter should be granted by the legislature to the company or trustees, and the same should be adopted at a meeting of the stockholders, it was declared that the same should be binding upon the subscribers to the articles of association, and that the trust thereby created should cease and vest in the company.

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The 2500 shares of stock were subscribed for within ^ie stipulated time, and the trustees made large purchases of land in the contemplated block, and entered into contracts and personal liabilities to a large amount to carry into effect the objects of the association. On the 21st February, 1837, a charter was obtained from the legislature, and the company incorporated. Seven persons were named in the act of incorporation as the first directors, who were to hold their offices until the second Monday of January, 1838, only four of whom were of the number of trustees named in the articles of association. The charter took effect immediately, and was adopted at a meeting of the stockholders. Previous to its adoption ¿wo calls of five dollars each on each share of the stock had been made by the trustees, and after its adoption four more calls of a like amount were made. The defendant was one of the original subscribers to the articles of association, and subscribed for two shares of the stock. The defendant having neglected to pay the calls upon his shares, this action was brought against him to recover sixty dollars, the amount of six calls. The suit was commenced in July term, 1837, after the act of incorporation and the adoption of the charter, in the names of the seven persons named in the articles as trustees as plaintiffs. Upon the above state of facts the plaintiffs rested their cause. The defendant’s counsel thereupon moved for a nonsuit on the following grounds : 1. that the plaintiffs and the defendant being stockholders in a joint stock association were partners, and an action at law could not be maintained without showing a balance struck, or a settlement and an express promise to pay. 2. That the plaintiffs ceased to be trustees on the second Monday of January, 1837, according to the articles of association, and after that day were not entitled to maintain an action, or if entitled, they could sue only for the calls made previous to the expiration of their offices. 3. That the granting of the charter by the legislature, and the adoption of the same by the company put an end to the trust held by the plaintiffs, and the same vested in the incorporated company: and for that reason

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no action could be maintained by the plaintiffs except for the calls made previous to the granting and adoption of the charter; and 4. That the-defendant had a right to forfeit his stock, and the plaintiffs having failed to show a promise to pay, they were not entitled to recover. The judge refused to nonsuit the plaintiffs, and the jury under his direction found a verdict in their favor for the amount of the six calls with interest. The defendant asks for a new trial.

J. Holmes, for the defendant.

S. Stevens <§■ M. T. Reynolds, for the plaintiff.

By the Court,

The objection taken for the first lime on the argument, that this association was illegal as being in the nature of a corporation issuing scrips and providing for a transfer of its stock, is not well founded. The act of associating in this way is, we think, properly characterized, by the first exception taken on the trial. It constituted a partnership, valid as being formed for the purposes of a lawful and honest enterprize. Colly, on Part. 624, Am. ed. and the cases there cited.

It is, we think, clear that if this action will lie at all, it must be in the names of the plaintiffs, the original trustees to whom the promise was made. Such promise is not negotiable, and although the beneficial interest may have passed to the successors of the plaintiffs, and thence to the corporation created by the charter, no agreement contained in the articles could work a transfer of the legal right of action to others, to be pursued in their own names. They took but an equitable right as assignees, and have very properly proceeded and brought their suit in the name of the original promisees, their assignors. The promise being to pay to the trustees or their successors, is but an agreement that the successors should be considered and have all the rights of assignees, without a formal assignment. The same may be said as to the directors of the incorporated company. It may be that the calls should have been madé by the successors or assignees respectively holding the beneficial in

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terest at the time; yet, in legal effect, they "would be the calls of the original promisees, and should be so treated in pleading. No question is made in the case, however, but t^lat t*ie ca^s vvere made by the right persons.

The more nice question in the cause is the one first stated in the bill of exceptions, viz. that the plaintiffs themselves being stockholders, are co-partners with the defendant, and therefore can not maintain assumpsit. That the plaintiffs or either of them were stockholders does not appear in the bill of exceptions,- though it was assumed and agreed on the argument, that some or one of them are, and a desire mutually expressed that the question should be considered by us in reference to numerous other causes pending upon the articles wherein the fact would appear. We have accordingly looked into the question. No objection was made that if the articles were of a nature to raise a partnership, but that such a connection has been formed. The parties have subscribed ; all conditions in the way of the articles becoming absolutely obligatory, are removed; and the declaration avers that the trustees, the agents of all, have proceeded to action in the business of the company. Colly, on Part. 626, 7. It was denied, on the argument, however, that a joint stock company constitutes a partnership, and it was said this was so held by the late Chancellor Kent, in Livingston v. Lynch, 4 Johns. Ch. R. 573, 592, of The North River Steam Boat Company. The contrary is " extremely well settled by a long and well considered train of authority, both English and American, unbroken, as far as I have been 'able to find by a single judicial opinion beside that of Chancellor Kent. Colly, on Part. 626, 651, and the cases there cited. 3 Kent’s Comm. 26, 3d ed. and the cases there cited. Considering the question a priori, we. do not see how there can be any serious doubt. The stockholders became jointly interested in the subject of their dealings ; and their first article declares the object to be a fair return for their investments. The amount to each must of course depend on a general account of mutual profit and loss. Colly, on Part. 8, 14.

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It is true, that the law will not imply a promise from one partner to another in respect to their common concerns. Colly, on Part. 143. But I am not aware of any thing in this relation which precludes them from making a valid express contract inter se, and in respect to any branch of their partnership business if they choose. Several examples of this are given in the books. It was held that though a partner in a joint stock company go on and perform services and expend money as an agent in its forniation, he shall not have an action at law to recover it, even though the company in contemplation were never actually formed. Both plaintiff and defendant were shareholders having subscribed the articles. The defendant was chairman. Yet, Abbot, C. J. said, “ if he [the defendant] had given any ;personal undertaking to pay the expenses incurred by the plaintiff, that might entail a liability upon him.” Holmes v. Higgins, 2 Dowl. & Ryl. 196; 1 Barn. & Cress. 74, S. C. Accordingly in Venning v. Leckie, 13 East, 7, the defendant having agreed with the plaintiff his partner to take one-hall share of certain flax bought by the plaintiff on joint account, and to furnish the plaintiff with one-half the amount, in time for the payment thereof, in case he should require it, the K. B. held that the plaintiff might recover at law on this promise. Lord Ellenborough, C. J. said, “ There are many deeds of copartnership in which the partners covenant each to advance a certain sum at first, and can it be said that no action would lie by one to enforce that covenant against another, because there are accounts between them afterwards, which require unravelling in a court of equity ?” Le Blanc, J. said, “ The respective sums were to be paid by each before there could be any account of profit or loss between them as partners upon the goods.” In Neale v. Turton, 4 Bing. 149, Best, C. J. admitted that if one partner were to draw on other partners by name, and they were individually to accept, he might recover against them, because by such an acceptance, a separate right is acknowledged to exist. And Preston v. Strutton, I Anstr. 50, seems to have been decided on this principle. A specific promise or arrangement between partners, though

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in respect to a part of the common fund, therefore, takes it oui °f the general account in equity and makes it the subject of an action at law. Coffey v. Brian, 10 Moore, 341; 3 Bing. 54, S. C. And it was not denied in Davies v. Hawkins, 3 Maule & Sel. 4S8, but on the contrary seems to have been conceded, that it is competent for the parties to declare in advance by their articles of copartnership, the persons in whose name actions may be brought in behalf of the firm against a member of the firm, for goods sold to him by the partnership.

In the case at bar we have an express promise to pay a specific amount to the plaintiffs, which was to constitute so much of the original stock upon which the business of the company was to proceed. The money subscribed never made a part of the general account of the partners ; but even if it had, I find no case which holds that it might not have been taken out and made the subject of an action at law by an express agreement. The short of the agreement here is, that in consideration of the plaintiffs incurring certain duties as trustees, the defendant would pay them the sum subscribed by him, to enable them to carry on the common concern. ■Jale v. Lockie, 2 Stark. Rep. 107, will also be found a case in point. One partner agreed to furnish manuscript for a work to be printed by the other; but stopped after the print of 336 pages. Assumpsit was held to lie for the breach; and Lord Ellenborough, C. J. held that the defendant had no right arbitrarily to break off from the contract. He said “ the action is not brought to recover partnership profils, but for not contributing his labor towards the attainment of profits to be subsequently divided.” The motion for a new trial must be denied.

New trial denied.